The aftermath of the Autumn Statement – what’s next?

POSTED: 19th January 2015

IN: Business news

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Before Christmas the Chancellor of the Exchequer, George Osborne MP, presented his final Autumn Statement before the 2015 General Election.

This included a number of measures intended to support businesses in 2015 and beyond, with an emphasis placed on increasing the UK’s productivity and a series of measures aimed at supporting innovation, infrastructure and apprenticeships. Key points for businesses to note include:

Prospects for the economy: The Office of Budget Responsibility’s (OBR) forecasts for UK outlook were revised up in 2014 and 2015, although growth is then likely to slow as a result of diminished spare capacity and a weaker global outlook. Net trade is expected to continue to subtract from GDP growth, but a recovery in productivity should lessen the impact of this by boosting export competitiveness and the UK’s market share in emerging markets. The fiscal outlook has not improved much since March, meaning the budget deficit is expected to fall by only £6.3bn this year – around half of the decline expected in the OBR’s forecasts at the time of the Budget

The UK economy outperformed OBR’s March forecasts, with GDP expected to grow by 3% in 2014 and 2.4% in 2015, despite a bleak global outlook. Forecasts for the medium term have seen a modest downward revision as consumer spending is expected to fall more in line with income growth. Evidence of reduced spare capacity in the economy on the back of rapidly falling unemployment also means less scope for above-trend growth beyond 2016.

A benign inflationary environment has supported this positive outlook and is expected to remain below the Bank of England target of 2% up to 2017. Revisions to National Accounts have put the composition of growth in a more positive light with business investment now 4% higher than pre-crisis.

These positive developments have not led to significant improvements in the fiscal outlook since March. This is mostly down to subdued wage growth suppressing income tax receipts. Real wage growth should resume next year but is not expected to achieve pre-crisis levels within the five year forecast period.

Nevertheless, the fiscal outlook is set to improve in the long term with the deficit expected to fall each year before recording a surplus in 2018/19 and net debt to slip to 72.8% of GDP in 2019. However, this continues to assume that cuts to Departments’ spending will continue well into the next Parliament.

Infrastructure: The Government has announced spending of £15bn across five years to invest in Britain’s motorway and strategic A-road network. Investment in these roads was listed as the top priority for investment in a recent EEF survey of members.

Business rates: The terms of reference for a review of business rates will be announced shortly and the review will report by Budget 2016. The Government has however announced that the review will be fiscally neutral.

R&D tax credit: The government will increase the rate of the ‘above the line’ large companies’ R&D tax credit from 10% to 11% and will increase the rate of the SME scheme from 225% to 230% from April 2015. However, the government will restrict qualifying expenditure for R&D tax credits so that the costs of materials incorporated in products that are sold are no longer eligible.

Innovation support and Catapult centres: There will be an increase in funding for the High Value Manufacturing (HVM) Catapult innovation centres in 2015/16 and an additional Formulation Catapult centre for the HVM network was announced.

Abolition of NICs from apprentices under 25: The government will abolish employer National Insurance Contributions up to the upper earnings limit for apprentices aged under 25. This will come into effect from April 2016.

Northern powerhouse: The Autumn Statement included a series of announcements on boosting the UK’s Northern regions. Within this, a number of cities and regions in the north will produce a comprehensive transport strategy under a new umbrella organisation of Transport for the North. There was also a package of new investments in science and innovation facilities. Manchester will lead a pilot of further devolved powers and governance arrangements, with a directly elected Mayor – the first elections will take place in 2017.

Export support: £20m of support will be used to increase UKTI’s regional network of International Trade Advisors; provide tailored support to help companies access new markets through the internet and provide funding for a global events programme to double the attendance at international exhibitions by SMEs.

Business Bank: £400m additional venture capital support will be provided through the British Business Bank’s Enterprise Capital Funds programme over the next three years to ensure the programme can continue into the next Parliament.

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